Master Tenants and Regular Projects

We recently had a member with a question regarding a master tenant.  Les Sparks sent the question to HUD.  This is the information from that correspondence:

Question: I have had a question today about how to file a project that also has a master tenant. The loan and property stay at the project but all day-to-day operations are being transacted at the master tenant.  The CPA sent me the form HUD-92466 R outlining requirements.  The only real factor that seems to apply to the financial statements is that the surplus cash should be calculated together.  To get this done, should the CPA file a combined financial statement or should it file a stand-along project just as we would under a 232 leased project.

This is not a 232.  It is a normal multi-family project.  Both entities have executed a normal Regulatory Agreement.  I am confused.  Any insights?

Answer from HUD:

“Please know that you’re not alone…I’m confused too. This is another one of those, “make a square peg fit in a round hole” situations. Housing published the guidelines and the regulatory agreements on these deals without any consultation with us as to how we would actually collect these things and what they would look like. We don’t have a template for them. For now we are advising them to submit a financial statement for the lessor and to include the combined computation of surplus cash in the notes to financial statements. Unfortunately that’s the only way we can do this for now and there are currently not enough of these deals out there to make it worth the money to change the system.”

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